When you are putting together an effective estate plan, one of the most important decisions you’ll have to make will center on the type of medical care you receive, should you be rendered incapable of making your own decisions. For example, you may be averse to procedures that keep you alive by artificial means.

In Pennsylvania, there are two different types of legal instruments that address medical care and medical decisions in these situations—the living will and the health care power of attorney. They’re not exactly the same, though. Here’s an overview of both.

The Living Will

A living will customarily specifies the kinds of medical care that you want or don’t want in the event of a medical emergency. Living wills are often used to address concerns about the use of life support or resuscitation. As a general rule, the living will does not name a person to act as your medical power of attorney or make medical decisions for you. It’s usually limited to specific instructions about the care you want to receive.

Health Care Powers of Attorney

A health care power of attorney specifically designates a person to make medical decisions if you cannot. It can include specific instructions or wishes, but confers a general power on the designated person. The living will is generally viewed as a limited form of a health care power of attorney. Accordingly, if you have a health care power of attorney, and it identifies the type of care you want to receive (or don’t want to receive), a living will may not be necessary.

The Things You Need to Address in an Effective Estate Plan

If you haven’t given any thought to what will happen to your property, you’re not alone. Estimates indicate that less than half of Americans have any kind of estate plan in place. It’s a precarious position to be in, though, even if you don’t have a substantial estate. If you own any property that carries documents of title, such as a house or a car, your survivors could be in for a long and protracted process to transfer the property.

What You Need in an Effective Estate Plan

To fully protect your estate, as well as your loved one, you need:

A will or a trust—With a will, your property will pass upon your death according to specific instructions in the document. Property passed through a will must go through the probate process, where the court will ensure that your instructions are followed. With a trust, you can transfer your property into a separate legal entity (the trust) during your lifetime. Because you no longer own the property, it doesn’t have to go through probate after your death.

There are ways, however, of transferring property without a will or trust. For example, you can re-title certain assets, so that you hold them jointly. Upon your death, title will automatically pass to all other joint owners.

A power of attorney—A power of attorney actually conveys power while you are still alive, naming a person or entity to manage your affairs if you lack the capacity. You can grant limited powers or powers to manage all affairs.

A health care power of attorney—This document names a person who will have the power to make medical decisions on your behalf, should you be unable to do so.

A living will—The living will identifies types of medical treatment that you do or do not want to have, should you be unable to make the decision yourself.

If you’ve decided that it’s time to put an effective estate plan in place, to properly prepare for the orderly distribution of your assets in the event of your death, you’ve likely seen or heard references to the use of certain dispositive instruments—wills and trusts. But you may not have a clear understanding of the difference between the two estate planning tools and which might be best for your situation.

What Is a Will?

Also known as a “last will and testament,” this document includes specific instructions with respect to the distribution of your assets, as well as your debts. It’s also customary to include designation of a guardian for any minor children in your will. However, your will only goes into effect in the event of your death. Your will cannot be used to transfer property or institute any other legal action during your lifetime.

If you use a will to convey the property in your estate, it may be subject to probate. Your heirs may choose not to take your will through the probate courts, but any interested party always has the right to seek the authority of the probate court to settle your estate.
The preparation and execution of a will is typically a much simpler process than a trust, so there’s usually less expense upfront. However, because of the probate requirement, your heirs can end up paying more after your death.

What Is a Trust?

In essence, a trust is a separate legal entity that can hold property. The trust is created by a trust document, and names a trustee. Because the trust is a separate legal entity, you no longer own any property that you transfer to the trust. Because the probate process is set up to resolve the transfer of your property, and because you no longer own property placed in trust, any property placed in trust avoids the probate process.

A trust can be “inter vivos” or testamentary. An inter vivos trust goes into effect during your lifetime, allowing you to transfer assets before your death. A testamentary trust is created upon your death, with assets typically transferred to the trust by your will.
The preparation and execution of a trust is a far more complex process than the preparation of a will. Accordingly, there’s typically more upfront expense involved. However, because property transferred into a trust escapes probate, there’s less expense to your heirs after your death.

If you have a significant estate and you want to ensure that your assets will be distributed according to your wishes when you die, you’ve probably heard about or even given some consideration to executing an irrevocable trust. As the name implies, an irrevocable trust, once implemented, generally cannot be revoked or invalidated. There are significant benefits to an irrevocable trust, which can be used to:

Minimize estate tax consequences

Protect assets from creditors

Provide for family members who are minors, lack capacity to manage their own affairs, or have any type of special needs

There are literally dozens of different types of irrevocable trusts. In this blog, we will look at irrevocable trusts that can have an impact on potential tax liability.

Irrevocable Trusts That Can Reduce or Avoid Taxes

Managing potential tax liability is often the primary reason for preparing and executing an irrevocable trust. The types of irrevocable trusts that can avoid or reduce taxes include:

Charitable trusts – A charitable trust affects potential tax liability by making gifts to charitable organizations. There are three types of charitable trusts:

Charitable lead trusts – With this type of charitable trust, you name a charity to receive any income produced by the property in the trust, and another beneficiary to receive the principal in the trust when the trust is terminated.

Charitable remainder trusts – This type of trust distributes income to a named beneficiary, with principal given to a charitable organization at the termination of the trust

Pooled income trusts – This type of trust allows you to pool assets with other trustors (trust makers) and receive income from the trust for a specific period of time. In most instances, a charitable organization is both trustee and beneficiary of principal.

Bypass trusts – This type of trust is used to protect property that would be transferred to a spouse upon death. Instead of being distributed to the spouse, the property is placed in trust. The spouse may receive income from the property or use it (if it’s real property, for example), but never owns the property, so it’s never part of the estate.

QTIP trusts – A qualified terminable interest property (QTIP) trust postpones the payment of estate taxes until the death of the surviving spouse.

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For most folks, there’s no investment more substantial than the sale or purchase of a home. The transaction involves a substantial number of complex documents, from the purchase agreement to the deed, the mortgage, financing documents and title commitments. In a transaction of this magnitude, it’s just good sense to hire an attorney to ensure everything is in order. But you also want your lawyer to go to the closing.

Why You Have a Closing

The primary function of the closing is to ensure the simultaneous transfer of the property to the buyer and payment of the purchase price to the seller. At the closing, the buyer will typically make payment in a form previously agreed upon. If there’s still an existing mortgage on the property, the closing agent will prepare a check to pay off that mortgage from the proceeds of the sale, so that the buyer takes the property free and clear of the prior mortgage. At the closing, the seller will also sign the deed and give it to the buyer, thereby conveying possession of the property. The closing agent then registers a new deed with the appropriate local governmental office (usually a register of deeds).

The Benefits of Having a Lawyer at a Closing

In most instances, your lawyer will review the proposed closing statement before the actual closing takes place. However, you want your attorney at the actual closing to deal with any unanticipated contingencies, and to confirm that everything is as expected:

Identifying and addressing any potential cloud or defect on title

Ensuring that the deed provided is what was agreed upon

Verification that all promised repairs or modifications in the buy-sell agreement have been made

Making certain the seller doesn’t try to change any terms at the last minute, or try to back out without sufficient legal reason

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There’s a common misperception that, if you die without a will in Pennsylvania, no one will know what to do with your property and your heirs will have to fight it out in probate court. To the contrary, Pennsylvania, like other states, has laws that specifically provide for the distribution of assets when a person dies without a will. Such a person is considered to have died “intestate,” and the distribution of the estate is governed by Pennsylvania’s laws of intestacy.

Contrary to another common myth, the laws of intestacy do not give all the deceased’s property to the state. Here’s an overview of the general distribution set forth in the Pennsylvania intestacy laws:

If there are no surviving children — If you die leaving a spouse, but have no living children or parents, your spouse is entitled to the entire estate. If you have no surviving children, but a parent was alive at the time of your death, your spouse gets the first $30,000 and half of any residuary estate. Surviving parents will share the rest of the estate.

If there are surviving children — If your spouse survives you, and all of your surviving children are also the children of your spouse, your spouse will get the first $30,000, plus half of any remaining property. If, however, you have any surviving children who are not the offspring of your surviving spouse, your surviving spouse only gets half of the estate (and is not entitled to the first $30,000).

No surviving spouse — If your spouse predeceased you, your entire estate will go to your children. If you have no surviving children, the estate will be divided equally between your parents. If you have no surviving spouse, children or parents, the estate will go to your siblings or their children. If you had no surviving siblings, any living grandparents may share the estate (half to paternal and half to maternal grandparents). If there are no grandparents, the estate goes to your uncles, aunts and their children and grandchildren. Only if there are no such surviving relatives will the estate go to the Commonwealth of Pennsylvania.

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People do some pretty strange things when it comes time to divide the property of a loved one. It’s not uncommon for potential heirs to engage in wrongful conduct to gain advantage in estate matters. There are, however, ways that you can contest a will. Here are the most common factors that can be used to challenge the validity of a will:

Failure to meet formality requirements — In Pennsylvania, a will must meet certain technical requirements to be valid. It must be in writing, and it must be signed at the end of the document. Pennsylvania courts have ruled a will to be invalid because it was signed at the beginning of the document.

Misrepresentation or fraud — A will may be declared unenforceable if it can be shown that that testator (the person executing the will) was misled into believing it was something other than a will

Forgery — A will can also be rendered void if it can be proven that the testator never signed the will and that any signature on the will was forged

Undue influence — If you can show that someone named in the will exerted improper or undue influence on the testator, when the testator was in an intellectually weakened capacity. Undue influence in Pennsylvania requires that you show a confidential relationship between the person receiving a substantial benefit and the testator. The person may be a family member, caregiver or a person with power of attorney. Furthermore, there’s no requirement for undue influence that the testator lacked capacity, only that the testator’s “reasoning power, factual knowledge, freedom of thought and decision, and other characteristics of a fully competent mentality” be impaired.

Lack of capacity – For a Pennsylvania will to be valid, the testator must have been “of sound mind.”

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Regardless of the size of your estate, you want to make certain your property passes with minimal stress to your loved ones and in accordance with your wishes. One of the best ways to do that is by drafting and executing a “last will and testament.”

Uses of a Last Will and Testament

A valid will can be used to accomplish a number of objectives, including:

The orderly distribution of your assets, as well as payment of all final obligations

The designation of a person to act as guardian of your minor children

The designation of a person to manage any assets or property that you leave to minor children

The creation and funding of a trust to benefit loved ones

Charitable giving

Though you are not legally required to retain an attorney to prepare and execute a will, it’s money well-spent to do so. An attorney can help you take the right steps to minimize the risk of misunderstandings by beneficiaries—your heirs will be thankful if you use a lawyer to ensure clarity in the distribution of your property.

Pennsylvania does not require that a will be notarized, but does mandate that the will be signed in front of at least two witnesses, and that the witnesses sign the document as well. It’s often easier, though, if you have the will notarized, because then it will be considered to be “self-proving.” If a will is not “self-proving,” there are additional steps that you must take during the probate process to demonstrate the legitimacy of the will.

Other requirements for a valid will in Pennsylvania include:

The person executing the will must be at least 18 years old

The person executing the will must be of sound mind

The will must be in writing

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You’ve been thinking that it’s time to put together and implement an estate plan, so that you can protect your heirs and ensure the orderly distribution of your estate. You may be uncertain about the different options available to you, including whether it’s in your best interests to establish a trust to meet your goals.

What is a Trust?

In essence, a trust is a separate legal entity that can hold, obtain and distribute property. A trust is created by the execution of a written legal document, which identifies the terms. The trust typically involves three different parties—the trustor, the trustee and any beneficiaries. The trustor is the person who created the trust and customarily the one who places property into the trust. The trustee is the person or entity (a trustee can be an institution, such as a bank) given the responsibility for managing the trust in accordance with the trust terms. The beneficiaries are individuals or institutions that have been granted some right to distributions of income or property from the trust.

How Does a Trust Benefit You?

One of the common objectives of an estate plan is to avoid the probate process. In the probate process, the court oversees the orderly distribution of property in an estate. The process can be complex and time-consuming, tying up estate assets for months or even years. In addition, the costs of probate can be considerable…up to 7% of the estate.

However, the probate process only applies to property owned by the deceased at the time of death. When you place property in trust, you no longer own it, even if you have certain rights to use it. Because it’s no longer your property, it is not subject to probate. Instead, upon your death, it typically stays exactly where it is…in the trust.

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